People fortunate enough to own a home away from home often complain about a second residence being more trouble than it's worth-especially when it comes to homeowner's insurance. The increased premium is attributed to the fact that owners don't spend as much time at their second home as they do at the first. In the insurance company's eyes, that leaves the residence more susceptible to burglaries and fires.
Even though that fact is hard to dispute, there still are ways you can save on your insurance bill.
Someone to watch over your homeCompare Home Equity RatesCompare rates from up to 4 lenders for home equity
GO »The thought of having to pay a claim on a burglary scares the wits out of an insurance company. Abate their fears by installing an alarm system in your second residence. It may require some upfront money and an ongoing monitoring fee, but you could save upwards of 20 percent on your insurance bill. You'll save even more if your home is in a gated community.
Consolidate for the rebateUse the same agent on your second home that you use on your primary residence. You'll generally receive a discount on your policy when you have the same company insure multiple properties. Throw in an umbrella policy and car insurance, and your premium should decrease even further.
Renting out your summer homeWhen it comes to insuring a summer rental, you can't win. Insurance companies don't like the idea of you leaving your house all by itself, so they'll increase your rates. If you decide to rent it, they don't like that idea either, because tenants tend to mistreat property, or at least don't treat it as well as the real owner would. One way to offset the costs is to require any tenants to supply their own furnishings, thereby reducing the insurance company's liability.
Open the umbrellaIn our litigious society, an umbrella policy is a necessity-second home or no second home. These provide a hefty amount of general liability, usually around $1 million, and protect you from all types of lawsuits. Considering your potential risk exposure with a second home-especially one that you rent out-such policy is essential. Contact your agent to determine the proper amount of coverage for your situation.
The ability to retreat to that home away from home is a true blessing for people who own a second residence. However, insurance companies will do their best to spoil the fun. To soften the blow of a higher insurance policy, do what you can to lessen your insurer's risk exposure. Protect your second home like you would your first, and your premiums will reflect your extra effort.
Saturday, February 21, 2009
Credit Crunch Squashing Auto Loans
When the government has to inject cash into some of the world's largest banks, and General Electric goes to Warren Buffett for a $10 billion handout, there's no chance for regular working people to land a new car loan, right?
The answer may surprise you: that very question itself is hurting the auto industry right now.
Vote of no confidence
It's true enough that the big American carmakers are having cash problems. Auto sales dropped 27 percent between August and September, the biggest single-month drop in 17 years. What's more, we're at the lowest unit sales level in 15 years. Some lenders are holding back inventory financing, forcing a few of the nation's largest dealership chains to close their doors, unable to afford stocking the cars in their own lots anymore.
Reading the news is bad enough. Add in sky-high gas prices and concern about job security, and it's only natural to hold off on that shiny new sports car that you've been dreaming about.
Unintended consequences
Dealers still want to sell you a car. Ford, Chrysler, and General Motors all have 0 percent financing deals available right now, and GM is giving its 10 percent employee discount to outside customers. Even Toyota, the Japanese maker that doesn't do sales incentives very often, is losing sales and extending 0 percent auto loans to some buyers.
They're all trying to overcome the lack of consumer confidence with the best offers they can afford-and some that they can't. However, the bank still has a say. It used to be easier to get a car loan approved. Now, you'll need a great FICO credit score to qualify for most of those interest-free loans.
The existence of those low-interest loans is proof that you still can get auto loans if you need them. Just be prepared for a larger down payment, tougher late-payment penalties, and stricter credit score requirements. The car loan equivalent of subprime mortgages has gone out of style in a hurry. During the last four years, banks approved too many risky loans like that. Now, many of those are turning into write-offs for the banks, and lots of repossessed vehicles.
Ride the lightning
This, too, shall pass. Once the credit crunch blows over, it will be easier to get a car loan on good terms again, either from the dealer, or through your favorite bank. If you need a new car before then, take good care of your credit history and look out for a desperate automaker or dealership to hand you a truly great deal. Rebuilding consumer confidence isn't a quick or easy task, and somebody will bring out the big guns when financial circumstances allow. The government wants to keep Detroit alive and well, and has already approved a $25 billion loan to help the Big Three develop more fuel-efficient models.
The answer may surprise you: that very question itself is hurting the auto industry right now.
Vote of no confidence
It's true enough that the big American carmakers are having cash problems. Auto sales dropped 27 percent between August and September, the biggest single-month drop in 17 years. What's more, we're at the lowest unit sales level in 15 years. Some lenders are holding back inventory financing, forcing a few of the nation's largest dealership chains to close their doors, unable to afford stocking the cars in their own lots anymore.
Reading the news is bad enough. Add in sky-high gas prices and concern about job security, and it's only natural to hold off on that shiny new sports car that you've been dreaming about.
Unintended consequences
Dealers still want to sell you a car. Ford, Chrysler, and General Motors all have 0 percent financing deals available right now, and GM is giving its 10 percent employee discount to outside customers. Even Toyota, the Japanese maker that doesn't do sales incentives very often, is losing sales and extending 0 percent auto loans to some buyers.
They're all trying to overcome the lack of consumer confidence with the best offers they can afford-and some that they can't. However, the bank still has a say. It used to be easier to get a car loan approved. Now, you'll need a great FICO credit score to qualify for most of those interest-free loans.
The existence of those low-interest loans is proof that you still can get auto loans if you need them. Just be prepared for a larger down payment, tougher late-payment penalties, and stricter credit score requirements. The car loan equivalent of subprime mortgages has gone out of style in a hurry. During the last four years, banks approved too many risky loans like that. Now, many of those are turning into write-offs for the banks, and lots of repossessed vehicles.
Ride the lightning
This, too, shall pass. Once the credit crunch blows over, it will be easier to get a car loan on good terms again, either from the dealer, or through your favorite bank. If you need a new car before then, take good care of your credit history and look out for a desperate automaker or dealership to hand you a truly great deal. Rebuilding consumer confidence isn't a quick or easy task, and somebody will bring out the big guns when financial circumstances allow. The government wants to keep Detroit alive and well, and has already approved a $25 billion loan to help the Big Three develop more fuel-efficient models.
Gas Saving Tip: Drive a Scooter
Americans have always chosen their mode of transportation on the basis of style, and how it reflects their personalities. Tough guys ride Harleys, white-collar executives drive BMWs, and families stick to minivans. Typically, not too many motorists have made their decision out of a conscious decision to save gas. However, as oil prices have spiked to $100 a barrel, that line of thinking has started to change.
Mopeds are defined as a class of low-powered motorized vehicles, including scooters, which have automatic transmissions, step-through design, and bodies that conceal engines. Its low-power engine and ease of use makes it extremely attractive to commuters who are reluctant to handle a big motorcycle, but are eager to enjoy big savings on gas.
High gas prices, higher sales
Scooter sales have jumped 60 percent this year, a direct correlation to prices at the pump. No wonder we're starting to emulate the transportation choices of Europe, where higher fuel costs and the scooter have been staples for decades.
The rising gas prices in America haven't had a similar effect on motorcycle sales here. While bikes get between 40 and 60 miles per gallon, a scooter will get between 60 and 100 miles per gallon. The gas mileage differential has hurt motorcycle manufacturers like Harley Davidson, which has actually experienced a drop in sales. But gas prices alone can't explain their increased inventories
Dragging economy, value-packed scooter
Motorcycle sales figures reflect the slumping economy, as do lower-priced scooters, in the $2,000 to $3,000 range, which are enjoying the highest sales spike. There are more expensive scooter models, which can cost as much as $8,000, but they're not feeling the same surge as the more modestly-priced counterparts.
The people who are buying scooters aren't the ones who'd ordinarily not think twice about plunking down 20,000 for a Harley Davidson in good economic times. The new scooter buyer, who'd normally commute to and from work in his car, is opting for a less costly commute.
More Americans are commuting to work and school via the moped, demonstrating that two wheels are cheaper than four. Gone are the ego-driven decisions of hauling around a gas-guzzling SUV. Commuters are now stretching their pennies as far as they can, and with the low cost of a moped, they can generally recoup their investment rather quickly.
Transportation choices were once based on style, but now, tough economic times are forcing commuters to think differently. Scooters and mopeds are becoming the transit mode of choice. With an inexpensive purchase price and low operational cost, scooters are breaking up America's love affair with the automobile.
Mopeds are defined as a class of low-powered motorized vehicles, including scooters, which have automatic transmissions, step-through design, and bodies that conceal engines. Its low-power engine and ease of use makes it extremely attractive to commuters who are reluctant to handle a big motorcycle, but are eager to enjoy big savings on gas.
High gas prices, higher sales
Scooter sales have jumped 60 percent this year, a direct correlation to prices at the pump. No wonder we're starting to emulate the transportation choices of Europe, where higher fuel costs and the scooter have been staples for decades.
The rising gas prices in America haven't had a similar effect on motorcycle sales here. While bikes get between 40 and 60 miles per gallon, a scooter will get between 60 and 100 miles per gallon. The gas mileage differential has hurt motorcycle manufacturers like Harley Davidson, which has actually experienced a drop in sales. But gas prices alone can't explain their increased inventories
Dragging economy, value-packed scooter
Motorcycle sales figures reflect the slumping economy, as do lower-priced scooters, in the $2,000 to $3,000 range, which are enjoying the highest sales spike. There are more expensive scooter models, which can cost as much as $8,000, but they're not feeling the same surge as the more modestly-priced counterparts.
The people who are buying scooters aren't the ones who'd ordinarily not think twice about plunking down 20,000 for a Harley Davidson in good economic times. The new scooter buyer, who'd normally commute to and from work in his car, is opting for a less costly commute.
More Americans are commuting to work and school via the moped, demonstrating that two wheels are cheaper than four. Gone are the ego-driven decisions of hauling around a gas-guzzling SUV. Commuters are now stretching their pennies as far as they can, and with the low cost of a moped, they can generally recoup their investment rather quickly.
Transportation choices were once based on style, but now, tough economic times are forcing commuters to think differently. Scooters and mopeds are becoming the transit mode of choice. With an inexpensive purchase price and low operational cost, scooters are breaking up America's love affair with the automobile.
Bailout Offers Auto Loan Relief
Do you want a piece of the federal bailout action? Now may be your chance. GMAC, the financing unit of General Motors, is passing Troubled Asset Relief (TARP) funds onto its consumers, in the form of looser credit standards on auto loans. There's just one tiny catch-you must buy GM.
Auto industry secures bailout funding for car loans
The troubles of American automakers have been well documented. It's bad enough that they're coping with high labor costs, cars that don't appeal to consumers, and insufficient liquidity. But when you add in a tight credit environment that can't support consumer auto loans, it's a recipe for disaster.
The situation was so severe that the feds finally stepped in with two separate bailout deals. One of them provided much-needed cash to GM and Chrysler. The other bolstered GMAC, the primary provider of auto financing for GM dealers, with cash. The manufacturers will use their money to reposition their operations for future profitability, while GMAC will deploy its newfound capital to fund more car loans.
Lower standards for auto loans
To improve its car loan production, GMAC will lower its minimum credit score requirements. The move marks a return to GMAC's traditional underwriting standards. Two months ago, when the credit markets nearly grinded to a halt, GMAC was forced to increase its minimum approvable credit score from 621 to 700, because it didn't have access to the capital required to service those below-700 borrowers.
In late-December, however, GMAC secured a capital contribution from TARP. This money allows the company to reinstate the lower credit score minimum of 621.
In a public statement, GMAC President Bill Muir said, "We will continue to employ responsible credit standards, but will be able to relax the constraints we put in place a few months ago due to the credit crisis. We will immediately put our renewed access to capital to use to facilitate the purchase of cars and trucks in the U.S."
Aggressive auto financing promotions
GMAC also ran an aggressive 0 percent car loan promotion between December 30 and January 5. Inclusive of that promotion, GM's December sales were still down more than 31 percent. Full-year sales were down 22.9 percent.
TARP was established in early October when Congress passed the Emergency Economic Stabilization Act of 2008. To participate in the program, GMAC applied for bank holding company status in November; that application was approved by the Reserve-Board">Federal Reserve Board in the following month. GMAC subsequently received $6 billion in government bailout funds. Auto manufacturers GM and Chrysler received bailout financing under a separate arrangement by President Bush.
If your credit score is between 621 and 700, you can technically take a slice out of the bailout pie. Just head over to your nearest GM dealer, and finance an auto purchase.
Auto industry secures bailout funding for car loans
The troubles of American automakers have been well documented. It's bad enough that they're coping with high labor costs, cars that don't appeal to consumers, and insufficient liquidity. But when you add in a tight credit environment that can't support consumer auto loans, it's a recipe for disaster.
The situation was so severe that the feds finally stepped in with two separate bailout deals. One of them provided much-needed cash to GM and Chrysler. The other bolstered GMAC, the primary provider of auto financing for GM dealers, with cash. The manufacturers will use their money to reposition their operations for future profitability, while GMAC will deploy its newfound capital to fund more car loans.
Lower standards for auto loans
To improve its car loan production, GMAC will lower its minimum credit score requirements. The move marks a return to GMAC's traditional underwriting standards. Two months ago, when the credit markets nearly grinded to a halt, GMAC was forced to increase its minimum approvable credit score from 621 to 700, because it didn't have access to the capital required to service those below-700 borrowers.
In late-December, however, GMAC secured a capital contribution from TARP. This money allows the company to reinstate the lower credit score minimum of 621.
In a public statement, GMAC President Bill Muir said, "We will continue to employ responsible credit standards, but will be able to relax the constraints we put in place a few months ago due to the credit crisis. We will immediately put our renewed access to capital to use to facilitate the purchase of cars and trucks in the U.S."
Aggressive auto financing promotions
GMAC also ran an aggressive 0 percent car loan promotion between December 30 and January 5. Inclusive of that promotion, GM's December sales were still down more than 31 percent. Full-year sales were down 22.9 percent.
TARP was established in early October when Congress passed the Emergency Economic Stabilization Act of 2008. To participate in the program, GMAC applied for bank holding company status in November; that application was approved by the Reserve-Board">Federal Reserve Board in the following month. GMAC subsequently received $6 billion in government bailout funds. Auto manufacturers GM and Chrysler received bailout financing under a separate arrangement by President Bush.
If your credit score is between 621 and 700, you can technically take a slice out of the bailout pie. Just head over to your nearest GM dealer, and finance an auto purchase.
I have disputed several items on my Experian credit report and got them deleted. Now will the other 2?
I disputed several items on my Experian credit report and got some of them deleted. Now will the other 2 credit reporting agencies use that same info or do I need to start a new dispute with each of them?
Public CommentsYou need to start a new dispute with each of them. Zerro is correct. Each report is a separate entity. You have to continue to monitor your reports. Sometimes they pop back up a year or so later after you've disputed them.
Public CommentsYou need to start a new dispute with each of them. Zerro is correct. Each report is a separate entity. You have to continue to monitor your reports. Sometimes they pop back up a year or so later after you've disputed them.
What Loan company will take over my federal student loans when the loans are in default?
What Loan company will take over my federal student loans when the loans are in default so I can go back to school? My loans are government loans from Saillie Mae. I owe them under $5000. I heard about this company that will take over your school loans from them but I don't know the name of the company. I am at the point where I can't get a federal student loan until I pay this off.
Public CommentsWhen your federal educational loans are in default, you have several options: You can repay the loan in full. You can negotiate a new payment plan with your lender. You can "rehabilitate" your loan. You can consolidate your loan. Obviously option one is rarely attractive or possible for defaulted borrowers. Option two (renegotiate) should be investigated fully - most borrowers skip this step, but it's probably the best option for most people. Call your lender and ask to speak to someone in the "Workout" Department. Explain your situation to them (there's nothing unusual about it) and ask what options are available to you for switching to a graduated, extended or income-sensitive repayment plan. If your lender will agree to change your repayment plan, a few regular payments will get your default status removed, and the new plan may be easier for you to keep up with. Option three (rehabilitation) is really a specific form of a workout agreement. It probably won't help you much in your situation, because it requires an agreement between you and the lender that will allow you to make 9 consecutive on-time payments of some agreed-upon amount. Option four is everyone's favorite, but you must absolutely understand what a consolidation loan will do. To keep this utterly simple - a consolidation loan is a brand new loan that will pay off your old, defaulted loan. A consolidation loan MAY lower your monthly payments, but understand how this works. A consolidation loan never lowers your payments by wiping away some of your debt - a consolidation loan lowers your payments by stretching out the length of your loan. If you pay less every month, you'll make many additional monthly payments, and - in the end - you'll pay far more back than you would have paid on the original loan. As an example: Suppose I lent you $100 and you agreed to pay me back in 2 weeks by paying me $50 a week. You came back a few days later and explained that you weren't going to be able to afford to pay me $50 - is there something else we could do? "Oh, absolutely," I'd say, gallantly. "Instead of paying me $50 a week for 2 weeks, how about if you only pay me $10 a week for 17 weeks?" See - in the end, you'll pay me back $170 instead of $100 - that's how a consolidation loan works. But remember - we're not talking a $100 loan for a couple of weeks - by the time you pay that $5000 loan of yours back over many years, you'll pay a few thousand more than you might have paid if you didn't consolidate that loan. I've attached some information about consolidating from the Department of Education - take a few minutes to read it over. If you do choose to go this route, be sure to consolidate with a reputable lender (or directly with the government) and not with some fly-by-night operation that you learn about from some pay-per-click site shilled on Yahoo! Answers. Good luck to you! Right now it's taking over 9 months of consecutive payments to get out of 'default'. I have no way of knowing which lender is going to take over your loan because quite frankly, student lenders have really clamped down on who they will work with. This can also mean that you could stay in collections until it's paid off. The collection agency will work to find a lender to take your loan back over once you're out of collections. Once you are deemed out of 'default', you can then apply for student financial aid.
Public CommentsWhen your federal educational loans are in default, you have several options: You can repay the loan in full. You can negotiate a new payment plan with your lender. You can "rehabilitate" your loan. You can consolidate your loan. Obviously option one is rarely attractive or possible for defaulted borrowers. Option two (renegotiate) should be investigated fully - most borrowers skip this step, but it's probably the best option for most people. Call your lender and ask to speak to someone in the "Workout" Department. Explain your situation to them (there's nothing unusual about it) and ask what options are available to you for switching to a graduated, extended or income-sensitive repayment plan. If your lender will agree to change your repayment plan, a few regular payments will get your default status removed, and the new plan may be easier for you to keep up with. Option three (rehabilitation) is really a specific form of a workout agreement. It probably won't help you much in your situation, because it requires an agreement between you and the lender that will allow you to make 9 consecutive on-time payments of some agreed-upon amount. Option four is everyone's favorite, but you must absolutely understand what a consolidation loan will do. To keep this utterly simple - a consolidation loan is a brand new loan that will pay off your old, defaulted loan. A consolidation loan MAY lower your monthly payments, but understand how this works. A consolidation loan never lowers your payments by wiping away some of your debt - a consolidation loan lowers your payments by stretching out the length of your loan. If you pay less every month, you'll make many additional monthly payments, and - in the end - you'll pay far more back than you would have paid on the original loan. As an example: Suppose I lent you $100 and you agreed to pay me back in 2 weeks by paying me $50 a week. You came back a few days later and explained that you weren't going to be able to afford to pay me $50 - is there something else we could do? "Oh, absolutely," I'd say, gallantly. "Instead of paying me $50 a week for 2 weeks, how about if you only pay me $10 a week for 17 weeks?" See - in the end, you'll pay me back $170 instead of $100 - that's how a consolidation loan works. But remember - we're not talking a $100 loan for a couple of weeks - by the time you pay that $5000 loan of yours back over many years, you'll pay a few thousand more than you might have paid if you didn't consolidate that loan. I've attached some information about consolidating from the Department of Education - take a few minutes to read it over. If you do choose to go this route, be sure to consolidate with a reputable lender (or directly with the government) and not with some fly-by-night operation that you learn about from some pay-per-click site shilled on Yahoo! Answers. Good luck to you! Right now it's taking over 9 months of consecutive payments to get out of 'default'. I have no way of knowing which lender is going to take over your loan because quite frankly, student lenders have really clamped down on who they will work with. This can also mean that you could stay in collections until it's paid off. The collection agency will work to find a lender to take your loan back over once you're out of collections. Once you are deemed out of 'default', you can then apply for student financial aid.
A NextStudent Guide to Deferment and Forbearance
Sometimes life can put a dent in your budget, making it harder to pay your everyday living expenses and monthly bills. When faced with the loss of a job, going back to school or sudden unexpected expenses like medical bills or car-repair costs, even the most responsible borrowers can find themselves struggling to make their student loan payments.
If you ever find yourself in this situation, the main thing is not to let your student loan payments overwhelm you; don’t just ignore your student loan bills as you try to get back on your financial feet—every missed payment could be another blemish on your credit report. Miss enough payments, and you could go into default.
Default is serious. Besides the damage it does to your credit report, which can take years to repair, having a defaulted student loan could keep you from being able to borrow any other money, whether it’s for a new car, a home or another semester at school. If you default on a federal student loan, the government can even decide to garnish your wages.
But by being proactive and talking to your lender, you may be able to give your budget a little breathing room. Your federal student loans come with repayment plans and deferment and forbearance benefits that could help you when you’re having trouble making your monthly payments.
Income-sensitive, extended, and graduated repayment plans might be able to lower your monthly payments on your federal student loans. If you’re still having trouble meeting your monthly payment amount, deferment and forbearance periods may allow you to temporarily postpone your monthly student loan payments altogether without defaulting or affecting your credit rating.
To help make sure you know the payment postponement options you have available to you for those times when you’re finding it hard to meet your student loan payments, NextStudent, a leading Phoenix-based education funding company, offers this guide to deferment and forbearance.
DefermentDeferment allows you to temporarily stop making payments on your student loans. You must contact your lender to request a deferment, and you may need to fill out a deferment request form.
You may be able to request a deferment on your federal student loans (including Perkins loans, subsidized and unsubsidized Stafford loans, Grad PLUS loans, and consolidation loans) or on your parent PLUS loans if you are:
Enrolled in school at least half time Unemployed Experiencing economic hardship In the military and have been deployed If you’re enrolled at least half-time in an eligible undergraduate, graduate or professional degree program, you can request an in-school deferment on your federal student loans. You’ll need to provide proof of enrollment each semester.
You may also request a deferment in cases of unemployment, financial hardship, or military deployment, for up to a year at a time, up to a total of three years over the life of the loan.
Some private student loans may also allow you to defer payments while you’re in school at least half time, deployed for military service, or having financial difficulties. You need to contact your private student loan lender.
Interest Charges on Loans in DefermentInterest does not stop accruing while you’re in deferment. However, when you’re in deferment, you’ll only be responsible for the interest charges on your unsubsidized loans. For subsidized loans (which include Perkins loans and subsidized Stafford loans), any interest that accrues during a deferment period is paid by the government.
On your unsubsidized loans, even when you’re not required to make any payments while you’re in deferment, interest continues to accrue, and the unpaid interest will be added to your principal loan balance for you to repay once you go back into repayment.
When you defer a Federal Consolidation Loan, the government will pay the interest on that portion of your consolidation loan that was originally a Perkins loan, subsidized Stafford loan, or other subsidized federal student loan. You’ll only be responsible for paying the interest on that portion of a consolidation loan that was originally a PLUS loan, Grad PLUS loan, unsubsidized Stafford loan, or other unsubsidized federal education loan.
You can always choose to make interest payments during deferment in order to avoid having any accrued interest added to your principal loan balance.
ForbearanceForbearance allows you to temporarily reduce or postpone payments on your student loans. You must request a forbearance from your lender, and you typically need to complete a forbearance request form. You may also need to submit supporting documentation, depending on the nature of your request.
Generally, your lender can grant a forbearance for up to a year at a time. Unlike unemployment or economic hardship deferments, there is no three-year cumulative limit on discretionary forbearance periods granted due to financial hardship.
Interest Charges on Student Loans in ForbearanceInterest does not stop accruing while you’re in forbearance. When your student loans are in forbearance, you’ll continue to be charged interest on those student loans, whether they’re subsidized or unsubsidized.
Any unpaid interest that accrues will be added to your principal loan balance for you to repay once you go back into repayment.
Some forbearance arrangements may have you making interest-only payments, so no interest gets added to your principal. If the forbearance you arrange with your lender allows you to temporarily stop making payments altogether, you can always choose to make interest payments in order to avoid having any accrued interest added to your principal loan balance.
Important Points to Keep in MindDeferments and discretionary forbearances are not automatic. If you’re having trouble making your student loan payments and you’d like to request a deferment or forbearance to either reduce or postpone your payments, you need to contact your lender. You may be required to complete a deferment or forbearance request form and to submit supporting documentation.
Never assume that your deferment or forbearance has been automatically granted. You’ll receive something in writing from your lender regarding whether your request for a deferment or forbearance has been approved. If you don’t receive a written confirmation from your lender, you need to contact your lender to see if your deferment or forbearance request has been approved and to get that approval in writing.
Remember that deferment and forbearance periods are only temporary. At the end of your approved deferment or forbearance period, you’ll go back into repayment and be required to make monthly payments on your student loans. If you’re still having trouble making your payments at the end of your approved deferment or forbearance period, you may be able to request another deferment or forbearance—you’ll need to contact your lender.
Making small payments is better than making no payments at all. Even if your deferment or forbearance allows you to postpone your payments, interest doesn’t stop accruing just because you’re not making payments. If you have the room in your budget, consider making interest-only payments or paying as much of the interest as you can.
You’re responsible for the interest on any student loans you have in forbearance and on any unsubsidized loans you have in deferment (the government will pay interest on deferred subsidized loans). Any interest that accrues during deferment or forbearance that you don’t pay will be added to your principal loan balance for you to repay once repayment resumes.
When interest is added to your principal loan balance, it’s capitalized, meaning it becomes part of the principal and subject to interest itself. In other words, you’ll end up paying interest on interest. Even if you can’t make a full interest-only payment, any little bit you pay is that much less interest that will get capitalized.
If you ever find yourself in this situation, the main thing is not to let your student loan payments overwhelm you; don’t just ignore your student loan bills as you try to get back on your financial feet—every missed payment could be another blemish on your credit report. Miss enough payments, and you could go into default.
Default is serious. Besides the damage it does to your credit report, which can take years to repair, having a defaulted student loan could keep you from being able to borrow any other money, whether it’s for a new car, a home or another semester at school. If you default on a federal student loan, the government can even decide to garnish your wages.
But by being proactive and talking to your lender, you may be able to give your budget a little breathing room. Your federal student loans come with repayment plans and deferment and forbearance benefits that could help you when you’re having trouble making your monthly payments.
Income-sensitive, extended, and graduated repayment plans might be able to lower your monthly payments on your federal student loans. If you’re still having trouble meeting your monthly payment amount, deferment and forbearance periods may allow you to temporarily postpone your monthly student loan payments altogether without defaulting or affecting your credit rating.
To help make sure you know the payment postponement options you have available to you for those times when you’re finding it hard to meet your student loan payments, NextStudent, a leading Phoenix-based education funding company, offers this guide to deferment and forbearance.
DefermentDeferment allows you to temporarily stop making payments on your student loans. You must contact your lender to request a deferment, and you may need to fill out a deferment request form.
You may be able to request a deferment on your federal student loans (including Perkins loans, subsidized and unsubsidized Stafford loans, Grad PLUS loans, and consolidation loans) or on your parent PLUS loans if you are:
Enrolled in school at least half time Unemployed Experiencing economic hardship In the military and have been deployed If you’re enrolled at least half-time in an eligible undergraduate, graduate or professional degree program, you can request an in-school deferment on your federal student loans. You’ll need to provide proof of enrollment each semester.
You may also request a deferment in cases of unemployment, financial hardship, or military deployment, for up to a year at a time, up to a total of three years over the life of the loan.
Some private student loans may also allow you to defer payments while you’re in school at least half time, deployed for military service, or having financial difficulties. You need to contact your private student loan lender.
Interest Charges on Loans in DefermentInterest does not stop accruing while you’re in deferment. However, when you’re in deferment, you’ll only be responsible for the interest charges on your unsubsidized loans. For subsidized loans (which include Perkins loans and subsidized Stafford loans), any interest that accrues during a deferment period is paid by the government.
On your unsubsidized loans, even when you’re not required to make any payments while you’re in deferment, interest continues to accrue, and the unpaid interest will be added to your principal loan balance for you to repay once you go back into repayment.
When you defer a Federal Consolidation Loan, the government will pay the interest on that portion of your consolidation loan that was originally a Perkins loan, subsidized Stafford loan, or other subsidized federal student loan. You’ll only be responsible for paying the interest on that portion of a consolidation loan that was originally a PLUS loan, Grad PLUS loan, unsubsidized Stafford loan, or other unsubsidized federal education loan.
You can always choose to make interest payments during deferment in order to avoid having any accrued interest added to your principal loan balance.
ForbearanceForbearance allows you to temporarily reduce or postpone payments on your student loans. You must request a forbearance from your lender, and you typically need to complete a forbearance request form. You may also need to submit supporting documentation, depending on the nature of your request.
Generally, your lender can grant a forbearance for up to a year at a time. Unlike unemployment or economic hardship deferments, there is no three-year cumulative limit on discretionary forbearance periods granted due to financial hardship.
Interest Charges on Student Loans in ForbearanceInterest does not stop accruing while you’re in forbearance. When your student loans are in forbearance, you’ll continue to be charged interest on those student loans, whether they’re subsidized or unsubsidized.
Any unpaid interest that accrues will be added to your principal loan balance for you to repay once you go back into repayment.
Some forbearance arrangements may have you making interest-only payments, so no interest gets added to your principal. If the forbearance you arrange with your lender allows you to temporarily stop making payments altogether, you can always choose to make interest payments in order to avoid having any accrued interest added to your principal loan balance.
Important Points to Keep in MindDeferments and discretionary forbearances are not automatic. If you’re having trouble making your student loan payments and you’d like to request a deferment or forbearance to either reduce or postpone your payments, you need to contact your lender. You may be required to complete a deferment or forbearance request form and to submit supporting documentation.
Never assume that your deferment or forbearance has been automatically granted. You’ll receive something in writing from your lender regarding whether your request for a deferment or forbearance has been approved. If you don’t receive a written confirmation from your lender, you need to contact your lender to see if your deferment or forbearance request has been approved and to get that approval in writing.
Remember that deferment and forbearance periods are only temporary. At the end of your approved deferment or forbearance period, you’ll go back into repayment and be required to make monthly payments on your student loans. If you’re still having trouble making your payments at the end of your approved deferment or forbearance period, you may be able to request another deferment or forbearance—you’ll need to contact your lender.
Making small payments is better than making no payments at all. Even if your deferment or forbearance allows you to postpone your payments, interest doesn’t stop accruing just because you’re not making payments. If you have the room in your budget, consider making interest-only payments or paying as much of the interest as you can.
You’re responsible for the interest on any student loans you have in forbearance and on any unsubsidized loans you have in deferment (the government will pay interest on deferred subsidized loans). Any interest that accrues during deferment or forbearance that you don’t pay will be added to your principal loan balance for you to repay once repayment resumes.
When interest is added to your principal loan balance, it’s capitalized, meaning it becomes part of the principal and subject to interest itself. In other words, you’ll end up paying interest on interest. Even if you can’t make a full interest-only payment, any little bit you pay is that much less interest that will get capitalized.
Subscribe to:
Posts (Atom)
